Wednesday, October 13, 2004

It's generally considered bad form in reviewing books to complain
that the author hasn't written the book you wanted him to write. But
in this case, I think it might be fair to put readers on notice.

The ostensible subject of the book is World Bank head James
Wolfensohn, who certainly is a character, but Daniel Drezner
recommends it
as a reference on the bank itself -- clear eyed, searching, and
engagingly written:

How well-researched is this book? Mallaby's description of
Wolfensohn's first trip to Africa as World Bank president has a lot of
eye-grabbing detail, including one graf that describes how Wolfemsohn
looks at an airplane tarmac. The description was a bit thick, and I
was ready to chide Mallaby for inserting colorful details that neither
he nor anyone else could have remembered -- until I checked the
footnotes. Mallaby had recreated the scene using a World Bank video
recording. It sounds like a small thing, but is indicative of the
excellent sourcing in The World's Banker.

The thing is, my interest was less in cute James Wolfensohn stories
than in a defense of the Bank, and its sister institution, the IMF,
from its recent critics, like the Nobel Laureate, and erstwhile chief
economist for the World Bank, Joe Stiglitz. The book certainly looks
like it ought to answer the critics. It's a Council on
Foreign Relations book -- the establishment speaking for itself --
with back-cover blurbs from Robert Kagan and Fareed Zakaria.
Unfortunately, you can't judge this book by its cover.

As a sample of
the depth of the book's arguments: early on, Mallaby discusses the
"structural readjustment" policies that the Bank and IMF forced on the
governments it financed in the '70s and '80s:

The Bank rightly urged developing countries to devalue their
currencies ... oil was affordable only if countries boosted their
exports, and that meant ... having a low exchange rate. The Bank
simultaneously urged developing countries to cut government spending,
a harsh policy but ... governments had lived far beyond their means
during the 1970s. Little by little, these two core prescriptions were
broadened: the Bank started to urge Latin Americans and Africans to
cut trade barriers, to free prices, and generally to undo the
state-directed development model that many had followed for the past
two decades. Poor countries had not much choice but to comply ...

Some of this justification seems straightforward enough: Mallaby
points out that there was triple-digit inflation in Brazil and
Argentina. But then the argument starts to take a genuinely weird
turn:

... while limited state direction of a developing economy does not
have to be a bad thing, as East Asia's experience shows, Latin
Americans and Africans went on to make a crucial error. The East
Asian formula was to back industries that exported successfully; by
using foreign markets as a test of firms' mettle, they avoided backing
losers. But Latin Americans and Africans backed industries to supply
their own markets; since these markets were often protected by trade
barriers, their flagship firms escaped a competitive test of their
efficiency. Pretty soon, Latin Americans and Africans found
themselves pouring subsidies into white-elephant factories.

What's odd about this is that the Bank and IMF were not
directing the Latin Americans to emulate the successful policies of,
say, the South Koreans -- which included state support for industry
and (though you won't learn it from Mallaby) substantial management of
trade -- but rather to get out of supporting industries altogether.
And when describing the upshot, well... let me just quote:

The trouble was that the Bank wrapped its sound advice in
evangelistic market rhetoric. Echoing the free-market faith of its
leading shareholder in Washington ... the Bank declared that
structural adjustment would take no longer than five years ... This,
like many development promises, proved wildly optimistic. Having
grown 39 percent richer in the 1970s, the average Latin American grew
10 percent poorer in the subsequent decade[.] ... Budget austerity
... triggered riots in Zambia, Morocco, Bolivia, and the Dominican
Republic; in Sudan they precipitated the fall of a government.

So Mallaby begins by saying that the "advice" was "sound", and the
only problem was that it was, perhaps, a little tone deaf, even though
it advocated policies rather different from what had actually
worked in East Asia. And he goes on to say that in the areas
subjected to the "sound advice", it just didn't work. Which leaves
the reader wondering why exactly he considers the advice to have been
sound. It's a conundrum that echoes throughout the book; a bit later,
for instance, Mallaby states ex cathedra that "Africa's
continuing misery was explained to a large extent by the failure to
implement [structural adjustment] faithfully", while not saying a word
on what signalled the Africans' disturbing lack of faith. Or he will
talk about advice being based on "sound theory". Personally, I would
have thought that when theoretically sound advice consistently fails
in the real world, we should stop trying adjust the world, and adjust
the theory.

Echoing his ostensible subject, bank head James Wolfensohn, Mallaby
does cite third world corruption as a drag on development. But his
poster case of an economy riddled and wracked by corruption is
Indonesia -- where, he notes, it was awkward for the Bank to try to
clamp down precisely because both economic development and antipoverty
efforts were, by African standards at least, a smashing success. And
later on, in a discussion of a controversial Chinese project near
Tibet, he casually drops this bombshell:

China ... borrowed more from the bank during the 1990s than any other
country. There was an extremely good reason for this: not only was
China the world's most populous nation, it was also the most
spectacularly efficient at eliminating poverty. Indeed, China's
performance was so strong that it transformed the global picture,
rescuing the Bank from some embarrassment. In the rest of the
developing world, according to the Bank's own statistics, the number
of people living below the dollar-per-day line actually increased
between 1987 and 1998, and not by a small number: 100 million extra
people were living in abject poverty despite all the efforts of the
world's development agencies. But fortunately for the aid folk,
China lifted the same number of people out of poverty over this
period. So if you added China in to the picture, the embarrassment
vanished.

But does it? The Chinese Communist Party may be friendly to market
mechanisms now than in the days of Mao, but it is still quite active
in managing the country's economy, with (as elsewhere in Asia) an
emphasis on developing exports -- a State Department report from
the period describes a still large State Sector in the economy,
indirect subsidies for exports, and import barriers. And those favoring corruption as
an explanation for the laggard third world won't be pleased to know
that the Chinese model is spectacularly
corrupt, and its comparative success has come despite that. At
any rate, the upshot is that where the free-marketeering advice of the
Bank and IMF was followed, the trend was consistently, over decades,
that it failed.

Mallaby does cite countries that are doing it right -- Uganda, for instance, which has a good bunch of tough local technocrats. But while the Ugandan governments problems are not all its fault -- they're hardly to blame for the depredations of the Lord's Resistance Army, less a resistance movement than a violent death cult that sounds like something that wandered out of a Clive Barker novel -- the fact is that they are not doing as well as spectacularly corrupt governments elsewhere. (Besides, there's an odd note in the discussion of Uganda. One of the programs Mallaby praises is the governments drive towards universal, free elementary school education. Which strikes me personally as a good idea -- but it hasn't always struck the IMF that way; in other countries, they have insisted that the government collect school fees, under the rubric of "cost recovery". If Mallaby discussed those measures directly, I missed it).

At this point, we come around to Mallaby's discussion of critics of
the Bank's approach. The central figure here is, of course, Joe
Stiglitz, who Mallaby introduces as:

the brilliant and mischievous future Nobel laureate who had joined the
bank as chief economist at the start of 1997. Stiglitz had helped to
create a branch of economics that explained the failure of standard
market assumptions; he was like a boy who discovers a hole in the
floor of an exquisite house and keeps shouting and pointing at it.
never mind that the rest of the house is beautiful ...
Stiglitz had found a hole, a real hole, and he had built his career on
it.

And that's pretty much it for Mallaby's discussion of Stiglitz's
theoretical contributions. As to his critiques:

[Stiglitz] made much of the fact that IMF-prescribed austerity in
Thailand had bankrupted local companies ... and he frequently implied
that the IMF economists were to blinkered to realize that this might
happen. This last insinuation was utterly preposterous. The IMF had
indeed pressed too much austerity on Thailand and then later reversed
course, but it was slanderous to suggest that the IMFs policy makers
didn't know that raising interest rates could lead to bankruptcies.

But Mallaby's weasel words ("implied", "insinuation") implicitly
concede that Stiglitz never made that accusation; what he did say, in
very plain English, was that the IMF underestimated the risk and was
indifferent to the danger, and in this, Mallaby effectively concedes
that he was right. But that doesn't keep him from further describing
Stiglitz as an immature bomb thrower -- not for being wrong;
Stiglitz's arguments qua arguments are never seriously and
thoughtfully addressed, but for having the temerity to air critiques
of the IMF and U.S. Treasury in public, and worse, to suggest that anti-globalization street protesters weren't buffoons like the ones Mallaby describes (and like respectable people know them all to be), but that some of them might have valid points.

(Ironically, Stiglitz is presented as a less serious figure than
Wolfensohn, who was sympathetic to a lot of the critiques, but whose
temper and poor management style disrupted attempts to implement
changes in policy, and alienated subordinates to the point of outright
sabotage).

I started by saying that it's bad form in reviewing books to
complain that the author hasn't written the book you wanted him to
write. But it's still reasonable to ask what kind of book Mallaby has
written. It's a kind of book which doesn't present even a
half-hearted explanation of the theories underlying the policies it
describes, but has room for entire pages full of anecdotes about
Wolfensohn's service as a trustee at Carnegie hall, and the goings on
at his retreat in Wyoming:

For Wolfensohn, those days in his "log cabin" -- actually a log
cathedral build around astonishing spruce columns that soar thirty
feet up to the roof -- were not merely downtime. They were a chance
to connect with the World Bank's main shareholder, President Bill
Clinton, who had morphed from stranger to firm friend in the few
months since Wolfensohn's appointment. The shareholder in chief was
also vacationing in Jackson Hole, testing his wits against
Wolfensohn's neighborhood golf course and dining with Wolfensohn's
friend Harrison Ford. The World Bank president had introduced the
American president to a president from Hollywood, since Ford was soon
to appear in the movie Air Force One as President James
marshall. On August 19, Wolfensohn threw a party at his home to
celebrate Clinton's forth-ninth birthday. The photos show the two men
kitted out in denim shirts and bolo ties, surrounded by senators and
film stars and other natural soul mates.

This is a book which presents the glamorous life of our national
leadership, and treats their policies as informed by wisdom beyond our
ken, which is too recondite to be properly considered in public.
Readers of an earlier age -- accustomed to second hand reports of the
glories of royal courts -- would have looked at a passage like this and
known instantly what it is. But we live in a democracy where policies
are ultimately judged by the will of the people, so it must be
something else.

By the way, there's a lesson for Democratic politicians in that last bit I quoted. It's precisely the sort of thing that Republicans use to paint Democrats to their poor and middle class constituents as "not like us." Bill Clinton hangs out like movie stars; Tom DeLay, for his part, may have turned into a spectacularly corrupt Washington power broker, but he still looks the part of an exterminator from Texas. This stuff matters.

2 Comments:

Anonymous said...

Superb review. The thought of Mallaby (and David Brooks) on the foreign policy circuit is very wearying. I think Mallaby is a dim bulb, but wow, Stiglitz is a little child who doesn't recognize the blessings of a fancy house! Extraordinary. I can't believe that you made it through this book. Reminds of of Thomas Frank reading Thomas Friedman -- "I thought to myself, this is what the ruling class believes is thinking."

You should send this on to Daniel Davies -- he'll like that China bit especially.

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